Poland Autos Report Q1 2009

Poland will not escape the effects of the general downturn in the automotive market in 2009, with both sales and output set to be hit. But BMI.s latest Poland Automotives Report forecasts a strong recovery in the domestic market from 2011. At the same time, assembly lines should ramp up output as the country continues to secure its position as a major production up for leading carmakers.

In the first 10 months of 2008, Poland.s passenger car and van production was up 25.6% y-o-y to 885,641 units. However, October results reveal a declining trend in line with falling demand in key export markets, with output reaching 85,056 units, down 14.3% month-on-month (m-o-m) and down 6.0% yearon- year (y-o-y). Car output was up 25.5% y-o-y to 773,073 units over the 10-month period, but in October was down 10.6% m-o-m and 6.0% y-o-y. Van production was up 26.8% y-o-y to 112,568 units in January-October, but October figures showed output down 38.0% m-o-m and 6.2% y-o-y.

Carmakers are scaling back Polish output in response to declining demand in Western Europe. General Motors (GM).s Polish subsidiary stopped production of Opel models at its Gliwice plant in October 2008. Meanwhile, Volkswagen (VW).s LCV plant in Poznan announced it would halt production towards the end of December. FSO also suspended production at its Warsaw plant due to delays in supplies from South Korea. However, plans are in the pipeline to raise production capacity, with majors looking beyond recession to Poland.s long-term position as a manufacturing hub.

Chevrolet recently announced the production of its Chevrolet Aveo in Poland, and by 2009 it intends to expand production capacity for more than 100,000 vehicles to be sold in the EU and the Commonwealth of Independent States (CIS). In September 2008, Ford began volume production of the new Ka model at Tychy. The plant, which is owned by Fiat, will produce 120,000 units per annum, in addition to the Fiat 500 model. Despite this increase in capacity, Poland is unlikely to fulfil its full potential over the next two years due to a depressed Western European market. Output will grow by only 2.4% in 2009 and 6.8% in 2010, but by 2013 it will have reached 1.75mn units, an increase of around 50% over 2008, with BMI foreseeing a rapid increase in capacity utilisation and investment in new capacity.

New vehicle registrations in Poland were up by more than 9% y-o-y in the first nine months of 2008 to 297,930 units. However, domestic manufacturers curtailed productions as demand in key export markets slowed. According to figures from Poland.s automotive research institute SAMAR, vehicle output reached 800,585 units over the period, a 9% y-o-y increase. Of this, 97.6% was exported. With demand for vehicles in European markets falling 4.5% y-o-y due to the financial crisis and credit crunch, carmakers in Poland temporarily slowed down production; this is a trend that clearly falls in line with BMI.s forecast of slowing output growth as the EU market stagnates.

BMI envisages that a decline will be inevitable in 2009 as consumer confidence is rattled by a reduction in credit availability and heightened uncertainty. The slowdown in economic growth from 5.4% in 2008 to 3.5% in 2009 and 2.8% in 2010 will have a negative impact on the performance of the automotive market. Automotive sales will drop 6.4% to around 349,000 units in 2009 and will remain at that level in 2010. We forecast a strong recovery in 2011, with growth of around 24% in line with a rebound in economic growth and the release of pent-up demand caused by consumer wariness. By 2013, sales should reach nearly 512,000 units, an increase of around 37% over the level achieved in 2008.

Poland scored 60.9 points (out of a theoretical maximum of 100) in the BMI Automotive Business Environment Rating this quarter, an increase of 0.7 points over the previous quarter, securing it secondplace position in BMI.s ranking for Central and Eastern Europe, lying 9.0 points behind Russia and 5.1 points ahead of the Czech Republic. The improvement in Poland.s score is due to an improvement across its ratings, including an increase in the projected size of the automotive market and sector output over the long-run and an improvement in the structure of the economy. Despite the expected slump in sales and stagnation in output growth in 2009 and 2010, the Polish automotive industry should report a strong recovery from 2011 as the country retains its position as a light vehicle manufacturing hub for Europe.

However, the rise in the country.s rating has been held back by a deterioration in its overall Country Risk rating, which covers long-term economic and policy risk. Poland.s relatively strong position reflects the ongoing recovery of its car market and strong foreign investment in the automotive sector. A highly competitive market and a supportive regulatory framework coupled with a generally positive political and economic outlook have enabled Poland to rise above its regional rivals.